Often a mistake lenders make in response to Consumer Financial Protection Bureau guidance is to focus too narrowly on the agency’s advice. In other words, lenders and regulatory counsel sometimes focus on the details without seeing the big picture.
While the CFPB did mention a number of points in connection with its mini-correspondent guidance, it expressly stated that it was not limiting its considerations to those listed. In other words, the CFPB directly stated that it would consider any factors it deemed relevant. To that end, it is important to note that the overall message – that mini-correspondents were intended as transitions, not permanent business models – means that the loan channel would be examined for consistency with the intended purpose.
Along these lines, lenders should realize that macro-evaluation of relationships is just as important as examination of the particular factors mentioned by the agency. For instance, a mini-correspondent that has multiple investors and warehouse lines, but who always sells the loan to the warehouse lender, may be considered acting as a "broker" even though they have multiple warehouse lines and lenders. Similarly, a mini-correspondent who works with a warehouse lender and investor that has many “captive” relationships (expressly stated or otherwise) will likely be subject to greater scrutiny. Moreover, where many mini-correspondents having a relationship with a particular warehouse lender lack sufficient compliance infrastructure, it will lead to added scrutiny for all such mini-correspondents.
In sum, this means that investors, warehouse lenders, and mini-correspondents are “in this together.” They need to cooperate in terms of developing more robust renewal procedures to evaluate the progression to full correspondent status. This would involve greater knowledge of the mini-correspondents’ “other” business, compliance infrastructure, and year to year progression. While I expect many to push back on asking for, or providing, such information, it may well be a “price” that needs to be paid to safely maintain the mini-correspondent designation.